I really wonder about the Bank of America Countrywide Acquisistion
July 1, 2008 – 9:26 amHere is a comparison of more banks and thrifts. In looking over this, I continue to doubt the wisdom of BAC’s acquiring CFC. The upside does not seem to justify risking the downside. The spreadsheet below compares the five banks I have looked closely at over the last few months – WFC, STI, BAC, MTB and ZION across various parameters, primarily with respect to their asset quality. Please note our observations on the same and be aware that this is backwards looking from research I commissioned some time ago:
1. STI has high real estate exposure, higher NPA and 90+ days loan delinquent as proportion of tangible shareholders’ equity, lower allowance as a percent of NPAs, higher Texas ratio, higher ET shortfall to tangible equity, and lower NIM. Though STI does not report the geographic distribution of its operations, its primary markets include Florida, Georgia, Maryland, North and South Carolina among others. High exposure to Florida could make the bank highly susceptible to rising risk of loan losses. However, a noteworthy factor is that the stock has already gone down by around 50% over the last year.
2. BAC has the lowest tier 1 leverage and NIM among the group and relatively higher gross charge-offs and NPAs to tangible equity. We believe that BAC prospects should be considered together with the probable impact of the impending CFC takeover. This requires a detailed analysis of CFC’s state of affairs, which is horrible from the anecdotal research that I have gathered. Since I am in a rush, I will simply post the spreadsheet and comment on it throughout the day.
3. M&T also has a high real estate exposure and high NPA and 90+ days delinquent loans to tangible equity. However, it seems better provisioned that STI and has higher NIM than STI.
4. WFC also seems vulnerable primarily owing to high exposure to California and Florida, higher proportion of gross charge-offs and poorer capitalization.
| Comparison of banks | |||||
| Wells Fargo | SunTrust | Bank of America | M&T Bank | Zions Banc | |
| WFC | STI | BAC | MTB | ZION | |
| Stock price (last close) As on June 6, 2008 | 25.42 | 46.32 | 30.50 | 81.18 | 39.45 |
| Price Performance (Absolute) | |||||
| 1 months | -13.48% | -16.16% | -18.30% | -11.26% | -12.08% |
| 3 months | -9.57% | -15.89% | -16.98% | 5.03% | 12.33% |
| 12 months | -29.33% | -47.48% | -39.06% | -25.91% | -50.84% |
| Market cap | 84.75 bn | 16.28 bn | 136.26 bn | 8.94 bn | 4.24 bn |
| 1Q08 | |||||
| Wells Fargo | SunTrust | Bank of America | M&T Bank | Zions Bank | |
| WFC | STI | BAC | MTB | ZION | |
| Total loans ($ mn) | 386,333 | 123,713 | 873,870 | 49,279 | 40,064 |
| Loan composition: | |||||
| Commercial (other than real estate) | 24.0% | 30.2% | 30.5% | 27.4% | 46.0% |
| Commercial real estate | 16.6% | 10.4% | 7.2% | 37.0% | 34.8% |
| Residential real estate (including home equity) | 38.4% | 49.5% | 44.0% | 23.6% | 16.0% |
| Consumer loans | 19.2% | 9.9% | 18.3% | 12.0% | 1.9% |
| Total real estate exposure | 55.0% | 59.9% | 51.2% | 60.6% | 50.8% |
| Growth in total loans (q-o-q) | 1.1% | 1.1% | -0.3% | 2.6% | 2.1% |
| Commercial (other than real estate) | 2.3% | 3.8% | 1.0% | 6.0% | 3.2% |
| Commercial real estate | 2.9% | 2.3% | 2.4% | 9.3% | 2.1% |
| Residential real estate (including home equity) | 0.8% | -0.4% | -1.3% | NA | -0.1% |
| Consumer loans | -1.0% | -0.1% | -0.8% | NA | -6.1% |
| Shareholders’ equity | 48,159 | 18,431 | 156,309 | 6,488 | 5,328 |
| Goodwill and intangibles | 13,148 | 8,353 | 87,693 | 3,422 | 2,150 |
| Tangible shareholders’ equity | 35,011 | 10,078 | 68,616 | 3,066 | 3,178 |
| Total NPAs | 4,495 | 2,320 | 7,827 | 548 | 434 |
| NPAs as per cent of total loans | 1.2% | 1.9% | 0.9% | 1.1% | 1.1% |
| Growth in NPAs (q-o-q) | 16.2% | 40.1% | 31.6% | 12.4% | 53.0% |
| NPA composition (as % of respective loans): | |||||
| Commercial (other than real estate) | 0.6% | 0.3% | 0.5% | 0.6% | NA |
| Commercial real estate | 1.0% | 0.5% | 2.6% | 0.8% | NA |
| Residential real estate (including home equity) | 1.2% | 3.0% | 1.1% | 3.3% | NA |
| Consumer loans | 0.3% | 0.4% | 0.3% | 0.6% | NA |
| Loans 90 days or more delinquent still accruing | 1,631 | 744 | 4,160 | 81 | 85 |
| As % of total loans | 0.4% | 0.6% | 0.5% | 0.2% | 0.2% |
| NPAs and 90+ days delinquent loans as % of total loans | 1.6% | 2.5% | 1.4% | 1.3% | 1.3% |
| NPAs and 90+ days delinquent loans as % of shareholders’ equity | 12.7% | 16.6% | 7.7% | 9.7% | 9.7% |
| NPAs and 90+ days delinquent loans as % of tangible shareholders’ equity | 17.5% | 30.4% | 17.5% | 20.5% | 16.3% |
| Gross Charge offs | 1,764 | 323 | 3,180 | 56 | 54 |
| Gross charge-offs as per cent of total loans | 0.5% | 0.3% | 0.4% | 0.1% | 0.1% |
| Growth in gross charge-offs (q-o-q) | 23.62% | 68.60% | 39.17% | -12.58% | 79.03% |
| Gross charge-off compisition (as % of respective loans): | |||||
| Commercial (other than real estate) | 0.28% | 0.10% | 0.19% | NA | 0.01% |
| Commercial real estate | 0.07% | 0.00% | 0.17% | NA | 0.22% |
| Residential real estate (including home equity) | 0.36% | 0.38% | 0.17% | NA | NA |
| Consumer loans | 1.15% | 0.43% | 1.19% | NA | NA |
| Gross charge-offs as % of shareholders’ equity | 3.7% | 1.8% | 2.0% | 0.9% | 1.0% |
| Gross charge-offs as % of tangible shareholders’ equity | 5.04% | 3.2% | 4.63% | 1.8% | 1.7% |
| Provision for loan loss charge | 2,028 | 560 | 6,021 | 60 | 92 |
| As per cent of total loans | 0.5% | 0.5% | 0.7% | 0.1% | 0.2% |
| As per cent of NPAs | 45.1% | 24.1% | 76.9% | 11.0% | 21.2% |
| As per cent of gross charge-offs | 114.97% | 173.54% | 189.34% | 107.52% | 171.68% |
| Reserve for loan losss (EOP) | 6,013 | 1,545 | 14,891 | 774 | 501 |
| As per cent of total loans | 1.6% | 1.2% | 1.7% | 1.6% | 1.3% |
| As per cent of NPAs | 133.8% | 66.6% | 190.3% | 141.2% | 115.4% |
| As per cent of gross charge-offs | 340.87% | 478.88% | 468.27% | 1386.27% | 932.60% |
| Texas ratio | 14.9% | 26.4% | 14.4% | 16.4% | 14.1% |
| Change in Texas ratio from preceding quarter (bps) | 1.38 | 5.85 | 2.26 | 1.53 | 4.05 |
| Eyles Test reserve for loan loss | 8,606 | 3,688 | 22,182 | 841 | 825 |
| Shortfall as a % of tangible book value | 7.4% | 21.3% | 10.6% | 2.2% | 10.2% |
| NIM | 4.7% | 3.1% | 2.7% | 3.4% | 4.2% |
| Leverage ratio (Tier 1 capital / average assets) | 7.04 | 7.20 | 5.61 | 7.04 | 7.18 |
| High-risk geographic exposure | |||||
| Commercial real estate loans in California & Florida | 37% | ||||
| Home equity loans in California and Florida | 41% | ||||
| Residential real estate loans in California, Florida and Nevada | 40% | ||||
| Residential mortgage loans in California and Florida | 39% | ||||
| Home equity loans in California and Florida | 40% | ||||
| Credit card loans in California and Florida | 19% | ||||
| Commercial real estate loans in California & Florida | 24% | ||||
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